Solutionmanualforfinancialaccounting10theditionharrisonhorngrenthomas 160426172418

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Chapter 2
Transaction Analysis
Short Exercises
(5 min.) S 2-1
Alexanders payment was not an expense.
Alexander acquired an asset, Equipment, because the computer is an
economic resource of the business.
(5 min.) S 2-2
a.
$19,400 ($15,000 + $4,400 + $7,500 $7,500)
b.
$ 4,400
(5-10 min.) S 2-3

Cash
Bal.
60,000
4,200
59,500
4,700
(5 min.) S 2-4
Copyright 2015 Pearson Education Inc.
Chapter 2
2-1
Increased total assets:
2-2
July 1
July 1
July 3
Financial Accounting 10/e Solutions Manual
(Cash)
(Medical Supplies)
(Cash, Accounts Receivable)
Full file at http://testbankcafe.EU/ Solution-Manual-for-Financial-Accounting-10th-Edition-Harrison,-Horngren,Thomas
(5-10 min.) S 2-5

a.
Purchase of asset on account

Borrow money
Payment of dividends to owners
Expense transaction (ex: received and paid utility bill)
Pay a liability
Return an asset purchased on account
Issuance of stock
Revenue transaction (ex: provided services on account or for
cash)
Purchase of asset for cash
Sale of asset for cash
Collection of an account receivable
b.
c.
d.
e.
(Answers may vary.)

(10 min.) S 2-6
DATE
Oct.
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
15 Cash.........................................................
Note Payable...................................
Borrowed money from the bank.
64,000
22 Accounts Receivable..............................
Service Revenue.............................
Performed service on account.
17,100
28 Cash.........................................................
Accounts Receivable.....................
Received cash on account.
10,300
Chapter 2
CREDIT
64,000
17,100
10,300
2-3
29 Utilities Expense.....................................
Accounts Payable..........................
Received utility bill to be paid next
month.
1,450
31 Salary Expense........................................
Cash................................................
Paid salary expense.
10,100
1,450
10,100
(10-15 min.) S 2-7
Req. 1
DATE
Journal
DEBIT
Supplies...................................................
Purchased supplies on account.
4,800
Accounts Payable...................................
Cash................................................
Paid cash on account.
1,350
CREDIT
4,800
1,350
Req. 2
Accounts Payable
1,350
Bal.
2-4
4,800
3,450
Req. 3
The business owes $3,450, as shown in the Accounts Payable account.
(10-15 min.) S 2-8

Req. 1
Journal
DATE
DEBIT
Accounts Receivable...............................
Service Revenue...............................
Performed service on account.
3,900
Cash..........................................................
Accounts Receivable........................
Received cash on account.
2,000
CREDIT
3,900
2,000
Req. 2
Cash
Accounts Receivable
2,000
Bal.
2,000
3,900
Bal.
Service Revenue
2,000
1,900
3,900
Bal.
Chapter 2
3,900
2-5
(10 min.) S 2-9

First Mortgage Company
Trial Balance
December 31, 2014
ACCOUNT
DEBIT CREDIT
Millions
Cash................................................
$ 5
Other assets...................................
20
Accounts payable..........................
$ 6
Other liabilities...............................
Stockholders equity......................
Revenues........................................
38
Expenses........................................
27
___
Total.................................................
$52
$52
First Mortgage Companys net income: $11 million ($38 $27)
(10 min.) S 2-10

1.
Total assets
= $88,500 ($5,400 + $18,300 + $2,500 +

$21,700 + $40,600)
2-6
2.
Total liabilities = $48,900 ($26,000 + $22,900)
3.
Net income
= $19,900 ($63,600 $33,000 $8,000 $2,700)
Chapter 2
2-7
(10 min.) S 2-11

1.
Total debits =
$ 95,660 ($132,200 + $4,060 $40,600)
Total credits =
$132,200
Difference
$ 36,540 ($132,200 $95,660);
$36,540 / 9 = $4,060 (an integer), which suggests either a transposition

or a slide.
2.
Total debits =
$127,700 ($132,200 + $13,800 $18,300)
Total credits =
$132,200
Difference
$ 4,500 ($127,700 $132,200);
$4,500 / 9 = $500 (an integer), which suggests either a transposition or a

slide.
3.
Total debits =
$113,900 ($132,200 $18,300)
Total credits =
$150,500 ($132,200 + $18,300)
Difference
$ 36,600 ($150,500 $113,900)
$36,600 / 2 = $18,300 (original amount of accounts receivable).
(10 min.) S 2-12

G
A
F
C
D
I
J
2-8
1.
2.
3.
4.
5.
6.
7.
Debit
Expense
Net income
Ledger
Posting
Normal balance
Payable
E 8. Journal
H 9. Receivable
B 10. Owners equity
Chapter 2
2-9
(5 min.) S 2-13
Cash
Computer Equipment
200,000
56,000
Accounts Payable
Common Stock
56,000
200,000
Total debits
$256,000 ($200,000 + $56,000)
Total credits
$256,000 ($200,000 + $56,000)
Exercises
(10-15 min.) E 2-14A

TO:
Home Office
FROM:
Patti Brown, Store Manager
During the first week, I used the stores beginning cash to purchase
equipment and supplies. I signed a note payable to buy land and a
building. After all these transactions, the stores balance sheet appears
as follows:
Dresses Unlimited
2-10
San Antonio Store

Balance Sheet
Date
ASSETS
Cash
LIABILITIES
$ 104,900
Supplies
Note payable*
$279,000
6,100
Land
75,000
Building
204,000
Equipment
39,000
Total assets
$429,000
STOCKHOLDERS EQUITY
Common stock
150,000
Total liabilities and

stockholders equity
$429,000
*$75,000 + $204,000 = $279,000

Cash
150,000
39,000
6,100
104,900
(10-15 min.) E 2-15A
a.
Increased assets (cash)
b.
No effect (a personal transaction)
c.
No effect on total assets. Increase in cash offsets the decrease in

land.
d.
No effect on total assets. Increase in cash offsets the decrease in

accounts receivable.
Chapter 2
2-11
e.
No effect on total assets. Increase in land offsets the decrease in

cash.
2-12
f.
g.
Decreased assets (cash)
h.
Increased assets (equipment)
i.
Increased assets (office supplies)
j.
Full file at http://testbankcafe.EU/ Solution-Manual-for-Financial-Accounting-10th-Edition-Harrison,-Horngren,-Thomas
(10-20 min.) E 2-16A
Req. 1
Analysis of Transactions
=
LIABILITIES
+
ASSETS
Date
Cash
Accounts
Medical
+ Receivable + Supplies +
Land
Accounts
Payable
=
+
STOCKHOLDERS
EQUITY
Note
Common
Payable +
Stock +
Jan. 6 150,000
Retained
Earnings
150,000
9 (63,000)
Type of Stockholders
Equity Transaction
Issued stock
63,000
12
1,900
1,900
15 Not a transaction of the business.

15-31
4,800
4,800
9,600 Service revenue
15-31
(3,300)
(3,300) Salary expense
(1,200)
(1,200) Rent expense
(900)
Bal.
31
700
31
35,000
31
(500)
121,600
(900) Utilities expense

(700)
35,000
(500)
4,800
1,200 63,000
1,400
Chapter 2
35,000
150,000
4,200
$190,600
Chapter 2
$190,600
(continued) E 2-16A
Req. 2
a.
$190,600
b.
$4,800
c.
$36,400 ($1,400 + $35,000)
d.
$154,200 ($190,600 $36,400, or $150,000 + $4,200)
e.
$4,200 (Revenue, $9,600 minus expenses, $5,400 equals net

income, $4,200.)
Chapter 2
2-15
(10-15 min.) E 2-17A
DATE
2-16
Journal
DEBIT
CREDIT
Jan.
Cash.................................................................. 150,000
Common Stock........................................
Issued stock to owner.
Land..................................................................
Cash.........................................................
Purchased land.
63,000
12
Medical Supplies.............................................
1,900
15
Not a transaction of the business.
15-31 Cash..................................................................
Accounts Receivable......................................
Service Revenue.....................................
Performed service for cash and on account.
4,800
4,800
15-31 Salary Expense................................................

Rent Expense...................................................
Utilities Expense..............................................
Cash.........................................................
Paid expenses.
3,300
1,200
900
31
Cash..................................................................
Medical Supplies.....................................
Sold supplies.
700
31
Cash..................................................................
Note Payable............................................
Borrowed money.
35,000
31
Accounts Payable............................................
Cash.........................................................
Paid on account.
500
Chapter 2
150,000
63,000
1,900
9,600
5,400
700
35,000
500
2-17
2-18
(20-30 min.) E 2-18A

Req. 1
Cash
Jan.
6 150,000 Jan. 9
15-31
4,800
15-31
31
700
31
31 35,000
Bal.
121,600
Jan.
Bal.
Jan.
Medical Supplies
12
1,900 Jan. 31
1,200
Accounts Payable
31
500 Jan. 12
Bal.
63,000
5,400
500
700
Accounts Receivable
Jan. 15-31
4,800
Bal.
4,800
Jan.
Bal.
Land
63,000
63,000
Note Payable
Jan.
Bal.
1,900
1,400
Common Stock
Jan. 6 150,000
Bal.
150,000
Salary Expense
Jan. 15-31
3,300
Bal.
3,300
31
Service Revenue
Jan. 15-31
Bal.
Jan. 15-31
Bal.
35,000
35,000
9,600
9,600
Rent Expense
1,200
1,200
Utilities Expense
Jan. 15-31
900
Bal.
900
Chapter 2
2-19
(continued) E 2-18A
Req. 2
Dr. Rebecca Gray, P.C.
Trial Balance
January 31, 2014
ACCOUNT
DEBIT
Cash.............................................
$121,600
Accounts receivable...................
4,800
Medical supplies.........................
1,200
Land.............................................
63,000
CREDIT
Accounts payable.......................
$ 1,400
Note payable...............................
35,000
Common stock............................
150,000
Service revenue..........................
9,600
Salary expense...........................
3,300
Rent expense..............................
1,200
Utilities expense.........................
900
Total.............................................
$196,000
$196,000
Req. 3
2-20
Total assets ($121,600 + $4,800 + $1,200 + $63,000)........
$190,600
Total liabilities ($1,400 + $35,000)......................................
(36,400)
Total stockholders equity ($150,000 + $4,200*)...............
$154,200
*Net income = $4,200 ($9,600 $3,300 $1,200 $900)
Chapter 2
2-21
(10-15 min.) E 2-19A
Req. 1
Journal
1
Cash....................................................................
.
Common Stock.............................................
Issued common stock.
2
Cash....................................................................
.
Note Payable.................................................
Borrowed money; signed note payable.
3
Supplies..............................................................
.
Accounts Payable........................................
4
Land....................................................................
.
Cash..............................................................
Note Payable.................................................
Purchased land by paying cash and signing
a note payable.
5
Cash....................................................................
.
Supplies........................................................
Sold supplies for cash.
6 Accounts Payable..............................................
2-22
DEBIT
CREDIT
8,700
8,700
9,000
9,000
500
500
33,000
3,000
30,000
65
65
270
Cash..............................................................
7
Equipment..........................................................
.
Cash..............................................................
Paid cash for equipment.
270
3,500
3,500
Cash balance = $10,995 ($8,700 + $9,000 $3,000 + $65 $270 $3,500)

Company owes $39,230 ($9,000 + $30,000 + $500 $270)
Chapter 2
2-23
(10-20 min.) E 2-20A

Req. 1
Lake Oaks Pool Service, Inc.
Trial Balance
April 30, 2014
ACCOUNT
DEBIT
Cash..............................................
$19,760
Accounts receivable....................
5,300
Equipment....................................
29,200
CREDIT
Accounts payable........................
$ 4,800
Note payable................................
21,500
Common stock.............................
16,800
Retained earnings........................
4,700
Dividends.....................................
3,500
Service revenue...........................
20,910
Salary expense.............................
8,700
Utilities expense..........................
1,800
Delivery expense.........................
450
Total..............................................
$68,710
$68,710
Req. 2
Lake Oaks Pool Service, Inc.
Income Statement
For the Month Ended April 30, 2014
Service revenue...................................
Salary expense....................................
2-24
$20,910
$8,700
Utilities expense..................................
1,800
Delivery expense.................................
450
Total expenses.....................................
10,950
Net income...........................................
$ 9,960
Chapter 2
2-25
(15-25 min.) E 2-21A

Amandas Candies, Inc.
Trial Balance
September 30, 2014
ACCOUNT
DEBIT
Cash..............................................
$14,400*
Accounts receivable....................
12,600*
Inventory.......................................
17,300
Supplies........................................
400
Land..............................................
41,000
CREDIT
Accounts payable........................
$13,140*
Common stock.............................
47,300*
Sales revenue...............................
33,800
Insurance expense......................
3,700*
Salary expense.............................
2,200
Utilities expense..........................
1,640*
Rent expense...............................
1,000
_______
Total..............................................
$94,240
$94,240
_____
*Computations:
Cash: $14,200 + $200 = $14,400
Accounts Receivable: $12,800 $200 = $12,600
Accounts Payable: $11,600 + $1,000 $100 + $640 = $13,140
Common Stock: $47,100 + $200 = $47,300
Insurance Expense: $0 + $3,700 = $3,700
Utilities Expense: $1,000 + $640 = $1,640
2-26
(10-15 min.) E 2-22A

Cash
(a)
Bal.
Accounts Receivable
25,000 (b)
1,800
(f)
10,000
(d)
3,600
Bal.
10,000
(e)
500
(g)
3,200
15,900
Office Supplies
Office Furniture
(c)
1,050
(a)
10,400
Bal.
1,050
Bal.
10,400
Accounts Payable
(e)
500 (c)
Bal.
Common Stock
1,050
550
Dividends
(a)
35,400
Bal.
35,400
Service Revenue
(g)
3,200
(f)
10,000
Bal.
3,200
Bal.
10,000
Salary Expense
Rent Expense
(d)
3,600
(b)
1,800
Bal.
3,600
Bal.
1,800
Chapter 2
2-27
(10-20 min.) E 2-23A

Req. 1
Stephen Garner, Attorney
Trial Balance
November 30, 2014
ACCOUNT
DEBIT
Cash.............................................
$15,900
10,000
Office supplies............................
1,050
Office furniture............................
10,400
Common stock............................
Dividends....................................
CREDIT
550
35,400
3,200
Service revenue..........................
10,000
Salary expense...........................
3,600
Rent expense..............................
1,800
Total.............................................
$45,950
$45,950
Req. 2
The business performed well during November. The result of
operations was net income of $4,600, as shown by the income
statement accounts:
2-28
Service revenue................................. $ 10,000

Salary expense....................
$3,600
Rent expense......................
1,800
Total expenses...................................
(5,400)
Net income......................................... $ 4,600
Chapter 2
2-29
(10-15 min.) E 2-24B

TO:
Home Office
FROM:
Lori Lyons, Store Manager
During the first week, I used the stores beginning cash to purchase
equipment and supplies. I signed a note payable to buy land and a
building. After all these transactions, the stores balance sheet appears
as follows:
L. Deveta Fashions
New Orleans Store
Balance Sheet
Date
ASSETS
Cash
LIABILITIES
$ 49,500
Supplies
Note payable*
$211,000
7,500
Land
86,000
Building
125,000
Equipment
43,000
Total assets
$311,000
STOCKHOLDERS EQUITY
Common stock
100,000

stockholders equity
$311,000
_____
*($86,000 + $125,000) = $211,000
Cash
2-30
100,000
43,000
7,500
49,500
(10-15 min.) E 2-25B
a.
b.
Increased assets (land)
c.
Increased assets (supplies)
d.
No effect (a personal transaction)
e.
No effect on total assets. Increase in equipment offsets the

decrease in cash.
f.
g.
No effect on total assets. Increase in notes receivable offsets the

decrease in land.
h.
Increased assets (accounts receivable)
i.
j.
Chapter 2
2-31
(10-20 min.) E 2-26B

Req. 1
=
LIABILITIES
ASSETS
Date
Cash
March 6
Accounts
Medical
+ Receivable + Supplies +
Accounts
Land = Payable +
+ STOCKHOLDERS
EQUITY
Note
Common
Payable +
Stock +
40,000
Retained
Earnings
40,000
9 (21,000)
Equity Transaction
Issued stock
21,000
12
3,500
3,500
15 Not a transaction of the business.

15-31
10,050
15-31
(7,500)
(7,500) Salary expense
(2,400)
(3,600)
(3,600) Utilities expense
Bal.
31
920
31
32,000
31
(500)
47,970
10,050
20,100 Service revenue
(920)
32,000
_(500)
10,050
2,580 21,000
Chapter 2
3,000
32,000
40,000
6,600
$81,600
$81,600
Chapter 2
(continued) E2-26B
Req. 2
a.
$81,600
b.
$10,050
c.
$35,000 ($3,000 + $32,000)
d.
$46,600 ($81,600 $35,000, or $40,000 + $6,600)
e.
$6,600 (Revenue, $20,100 minus expenses, $13,500, equals net

income, $6,600.)
(10-15 min.) E 2-27B

Journal
DATE
Mar.
DEBIT
Cash.......................................................
Common Stock.............................
Issued stock to owner.
40,000
Land .......................................................
Cash..............................................
Purchased land.
21,000
12
Medical Supplies...................................
Accounts Payable........................
3,500
Chapter 2
CREDIT
40,000
21,000
3,500
15
Not a transaction of the business.
15-31 Cash....................................................... 10,050

Accounts Receivable............................ 10,050
Service Revenue..........................
Performed service for cash and on account.
15-31 Salary Expense.....................................
Rent Expense........................................
Utilities Expense...................................
Cash..............................................
Paid expenses.
31
31
31
7,500
2,400
3,600
13,500
Cash.......................................................
Medical Supplies..........................
Sold supplies.
920
Cash.......................................................
Note Payable.................................
Borrowed money.
32,000
Accounts Payable.................................
Cash..............................................
Paid on account.
500
Chapter 2
20,100
920
32,000
500
(20-30 min.) E 2-28B

Req. 1
Mar.
Bal.
Mar.
Bal.
Mar.
6
15-31
31
31
Cash
40,000 Mar. 9
10,050
15-31
920
31
32,000
47,970
Medical Supplies
12
3,500 Mar. 31
2,580
Accounts Payable
31
500 Mar. 12
Bal.
Common Stock
Mar. 6
Bal.
Salary Expense
Mar. 15-31
7,500
Bal.
7,500
21,000
13,500
500
920
Accounts Receivable
Mar. 15-31 10,050
Bal.
10,050
Mar.
Bal.
Land
21,000
21,000
Note Payable
Mar.
Bal.
3,500
3,000
Service Revenue
Mar. 15-31 20,100
Bal.
20,100
40,000
40,000
Rent Expense
Mar. 15-31
2,400
Bal.
2,400
Utilities Expense
Mar. 15-31
3,600
Bal.
3,600
31 32,000
32,000
Chapter 2
(continued) E 2-28B
Req. 2
Dr. Fred Grimes, P.C.
Trial Balance
March 31, 2014
ACCOUNT
DEBIT
CREDIT
Cash.............................................
$47,970
10,050
Medical supplies.........................
2,580
Land.............................................
21,000
$ 3,000
Note payable...............................
32,000
Common stock............................
40,000
Service revenue..........................
20,100
Salary expense...........................
7,500
3,600
Rent expense..............................
2,400
Total.............................................
$95,100
$95,100
Req. 3
Total assets ($47,970 + $10,050 + $2,580 + $21,000)...............
$81,600
Total liabilities ($3,000 + $32,000).............................................
(35,000)
Total stockholders equity ($40,000 + $6,600*)........................
$46,600
Chapter 2
*Net income = $6,600 ($20,100 $7,500 $3,600 $2,400)
Chapter 2
(10-15 min.) E 2-29B
Req. 1
Journal
Chapter 2
DEBIT
CREDIT
1.
Cash..................................................................
Common Stock.......................................
Issued common stock.
7,000
2.
Cash..................................................................
Note Payable...........................................
Borrowed money; signed note payable.
8,300
3.
Equipment........................................................
Cash.........................................................
Paid cash for equipment.
5,900
4.
Supplies............................................................
820
5.
Cash..............................................................
Supplies...................................................
Sold supplies for cash.
130
6.
Land ..................................................................
Cash.........................................................
Note Payable...........................................
Purchased land by paying cash and signing
a note payable.
36,000
7.
Accounts Payable............................................
Cash.........................................................
140
7,000
8,300
5,900
820
130
7,000
29,000
Cash balance = $2,390 ($7,000 + $8,300 $5,900 + $130 $7,000 $140)

Company owes $37,980 ($8,300 + $820 + $29,000 $140)
Chapter 2
140
(10-20 min.) E 2-30B

Req. 1
Castlerock Tree Service, Inc.
Trial Balance
September 30, 2014
ACCOUNT
DEBIT
CREDIT
Cash................................................
$19,300
Accounts receivable......................
8,200
Land................................................
29,600
Accounts payable..........................
$ 5,100
Note payable..................................
21,700
Common stock...............................
12,000
Retained earnings.........................
13,100
Dividends........................................
5,100
Service revenue.............................
32,300
Salary expense..............................
18,500
Utilities expense............................
2,700
Delivery expense...........................
800
Total................................................
$84,200
$84,200
Req. 2
Castlerock Tree Service, Inc.
Income Statement
For the Month Ended September 30, 2014
Service revenue......................................
$32,300
Salary expense.............................
$18,500
Utilities expense...........................
2,700
Chapter 2
Delivery expense..........................
800
Total expenses........................................
22,000
Net income..............................................
$10,300
Chapter 2
(15-25 min.) E 2-31B

Yellow Car Sales, Inc.
Trial Balance
June 30, 2014
ACCOUNT
DEBIT
CREDIT
Cash.......................................
$ 10,200*
Accounts receivable................
12,600*
Inventory...................................
17,100
Supplies....................................
800
Land...........................................
53,000
Accounts payable.....................
$ 15,550*
Common stock.........................
47,600*
Sales revenue...........................
37,100
Salary expense.........................
1,900
Insurance expense...................
1,800*
Utilities expense.......................
1,750*
Rent expense............................
1,100
_______
Total...........................................
$100,250
$100,250
_____
*Computations:
Cash: $9,600 + $600 = $10,200
Accounts Receivable: $13,200 $600 = $12,600
Accounts Payable: $12,200 + $3,000 $300 + $650 = $15,550
Common Stock: $47,400 + $200 = $47,600
Insurance Expense: $0 + $1,800 = $1,800
Utilities Expense: $1,100 + $650 = $1,750
Chapter 2
(10-15 min.) E 2-32B

Cash
(a)
Bal.
Accounts Receivable
26,000 (b)
2,600
(f)
9,100
(d)
3,700
Bal.
9,100
(e)
1,000
(g)
2,800
15,900
Office Supplies
Office Furniture
(c)
1,900
(a)
8,100
Bal.
1,900
Bal.
8,100
Accounts Payable
(e)
1,000 (c)
Bal.
Common Stock
1,900
900
Dividends
(a)
34,100
Bal.
34,100
Service Revenue
(g)
2,800
(f)
9,100
Bal.
2,800
Bal.
9,100
Salary Expense
Rent Expense
(d)
3,700
(b)
2,600
Bal.
3,700
Bal.
2,600
Chapter 2
(10-20 min.) E 2-33B

Req. 1
Laura Hull, Attorney
Trial Balance
July 31, 2014
ACCOUNT
DEBIT
CREDIT
Cash.............................................
$ 15,900
9,100
Office supplies............................
1,900
Office furniture............................
8,100
Common stock............................
Dividends....................................
900
34,100
2,800
Service revenue..........................
9,100
Salary expense...........................
3,700
Rent expense..............................
2,600
Total.............................................
$44,100
$44,100
Req. 2
The business performed well during July. The result of operations was
net income of $2,800, as shown by the income statement accounts:
Service revenue.....................................
Chapter 2
$ 9,100
Salary expense...........................$3,700
Rent expense.............................. 2,600
Total expenses.......................................
Net income.............................................
Chapter 2
(6,300)
$ 2,800
Serial Exercise
(20-30 min.) E 2-34
Req. 1
DATE
Journal
DEBIT
Jan. 2 Cash..........................................................
Common Stock................................
11,000
2 Rent Expense............................................
Cash..................................................
700
3 Equipment.................................................
Cash..................................................
3,900
4 Furniture....................................................
Accounts Payable............................
4,700
5 Supplies....................................................
Accounts Payable............................
400
9 Cash..........................................................
Service Revenue..............................
1,000
12 Utilities Expense.......................................
Cash..................................................
200
18 Accounts Receivable...............................
Service Revenue..............................
1,500
Chapter 2
CREDIT
11,000
700
3,900
4,700
400
1,000
200
1,500
(continued) E 2-34
Req. 2
Cash
Jan. 2
9
Bal.
Accounts Receivable
11,000 Jan. 2
1,000
700
3,900
12
200
Jan. 18
1,500
Bal.
1,500
7,200
Supplies
Equipment
Jan. 5
400
Jan. 3
3,900
Bal.
400
Bal.
3,900
Furniture
Accounts Payable
Jan. 4
4,700
Jan. 4
4,700
Bal.
4,700
400
Bal.
Common Stock
5,100
Service Revenue
Jan. 2
11,000
Jan. 9
1,000
Bal.
11,000
18
1,500
Bal.
Rent Expense
Utilities Expense
Chapter 2
2,500
Jan. 2
700
Jan. 12
200
Bal.
700
Bal.
200
Chapter 2
(continued) E 2-34
Req. 3
Sean Huffman, Certified Public Accountant, P.C.
Trial Balance
January 18, 2014
ACCOUNT
DEBIT
Cash.............................................
$ 7,200
1,500
Supplies.......................................
400
Equipment...................................
3,900
Furniture......................................
4,700
CREDIT
$ 5,100
Common stock............................
11,000
Dividends....................................
Service revenue..........................
2,500
Rent expense..............................
700
200
Salary expense...........................
Total.............................................
$18,600
Chapter 2
$18,600
Quiz
Q2-35
Q2-36
Q2-37
Q2-38
Q2-39
Q2-40
Q2-41
Q2-42
Q2-43
Q2-44
Q2-45
Q2-46
Q2-47
Q2-48
Q2-49
Q2-50
Q2-51
Q2-52
Q2-53
Q2-54
b
d
d
a
c
b
c
d
a
c
d
a
b
c
b
d
b
c
b
a
($54,000 + $30,000 + $22,000) = $106,000
Chapter 2
Problems
(15-30 min.) P 2-55A

Dear Annie,
This trial balance lists the accounts of the company, along with their
balances at December 31, 2014. The trial balance provides the data for
computing total assets, total liabilities, and net income or net loss.
Dallas Design Specialties
a.
Total assets = $438,600 ($31,600 + $65,000 + $3,000 + $235,000

+ $104,000)
b.
c.
Net income = $24,400 ($180,600 $59,000 $12,000 $76,200

$9,000)
Student responses may vary.
Chapter 2
(45-60 min.) P 2-56A

Req. 1
Cash
Bal.
2,600
a)
4,000
b)
6,300
c)
(4,100)
ASSETS
= LIABILITIES + STOCKHOLDERS
EQUITY
Accounts
+
Accounts
Common Retained
+ Receivable + Supplies Equipment = Payable + Stock
+ Earnings
3,300
11,700
f)
Issued stock
6,300
Service revenue
4,200
Service revenue
1,200
(1,700)
4,200
g)
3,000
(4,100)
1,200
1,700
6,500
4,000
d)
e)
8,100
Equity Transaction
(1,600)
(1,200)
(1,200) Advertising expense
h)
(2,700)
(2,700) Dividends
Bal.
5,000
5,800
1,200
11,700
5,200
Chapter 2
10,500
8,000
$23,700
$23,700
Chapter 2
(continued) P 2-56A
Req. 2
Taylor Computing, Inc.
Income Statement
Month Ended November 30, 2014
Revenues:
Service revenue ($6,300 + $4,200)..............
$10,500
Expenses:
Rent expense................................................
$1,600
Advertising expense....................................
1,200
Total expenses.............................................
2,800
Net income.............................................................
$7,700
Req. 3

Statement of Retained Earnings
Month Ended November 30, 2014
Retained earnings, November 1, 2014...........................
$ 3,000
Add: Net income..............................................................
7,700
Subtotal
10,700
Less: Dividends declared...............................................
(2,700)
Retained earnings, November 30, 2014.........................
$ 8,000
Req. 4
ASSETS
Cash.................................
Accounts receivable........

Balance Sheet
November 30, 2014
LIABILITIES
$ 5,000 Accounts payable................ $ 5,200
5,800
STOCKHOLDERS
Chapter 2
Supplies...........................
Equipment........................
1,200
EQUITY
11,700 Common stock.....................
10,500
Retained earnings................
8,000
Total stockholders equity
18,500

Total assets......................
$23,700
stockholders' equity........ $23,700
(30-40 min.) P 2-57A

Req. 1
Journal
ACCOUNT TITLES
a.
DEBIT
Cash.........................................................
Common Stock...............................
4,000
b.
Cash.........................................................
Service Revenue.............................
6,300
c.
Cash................................................
4,100
d.
Supplies...................................................
1,200
e.
Cash.........................................................
Accounts Receivable.....................
1,700
f.
Accounts Receivable..............................
Service Revenue.............................
4,200
g.
Rent Expense..........................................
Advertising Expense...............................
1,600
1,200
Chapter 2
CREDIT
4,000
6,300
4,100
1,200
1,700
4,200
Cash................................................
h.
2,800
Dividends.................................................
Cash................................................
2,700
2,700
(continued) P 2-57A
Reqs. 2 and 3
Cash
Accounts
Receivable
2,600
4,100
3,300
4,000
2,800
4,200
6,300
2,700
5,800
1,700
Supplies
Equipment
1,200
11,700
1,200
11,700
1,700
5,000
Accounts
Payable
4,100
Common Stock
8,100
6,500
1,200
4,000
5,200
10,500
Service
Revenue
6,300
Rent Expense
1,600
Retained
Earnings
Dividends
3,000
2,700
3,000
2,700
Advertising
Expense
1,200
4,200
Chapter 2
10,50
0
1,600
1,200
The balances of all the accounts Cash through Common Stock agree with the
ending balances obtained in Problem 2-56A.
Chapter 2
(50-60 min.) P 2-58A

Req. 1
Journal
DATE
Jan.
ACCOUNT TITLES
DEBIT
2 Cash .....................................................
Common Stock...........................
65,000
3 Supplies................................................
Equipment ...........................................
Accounts Payable.......................
1,000
12,000
4 Cash .....................................................
Service Revenue.........................
5,500
7 Land .....................................................
Cash.............................................
39,000
11 Accounts Receivable...........................
Service Revenue.........................
4,100
16 Accounts Payable................................
Cash.............................................
12,000
17 Advertising Expense...........................
Cash.............................................
600
18 Cash......................................................
Accounts Receivable.................
2,000
22
Utilities Expenses ...............................

Cash.............................................
Chapter 2
CREDIT
65,000
13,000
5,500
39,000
4,100
12,000
600
2,000
430
430
29
Cash .....................................................
Service Revenue.........................
2,600
31
Salary Expense....................................
Cash.............................................
2,900
31
Dividends..............................................
Cash.............................................
1,800
Chapter 2
2,600
2,900
1,800
(continued) P 2-58A
Req. 2
Bal.
Cash
65,000 Jan. 7 39,000
5,500
16 12,000
2,000
17
600
2,600
22
430
31 2,900
31 1,800
18,370
Jan. 3
Bal.
Equipment
12,000
12,000
Jan. 2
4
18
29
Accounts Payable
Jan. 16 12,000 Jan. 3 13,000
Bal.
1,000
Jan. 31
Bal.
Dividends
1,800
1,800
Salary Expense
Jan. 31
2,900
Bal.
2,900
Utilities Expense
Jan. 22
430
Bal.
430
Accounts Receivable
Jan. 11
4,100 Jan. 18 2,000
Bal.
2,100
Jan. 3
Bal.
Jan. 7
Bal.
Supplies
1,000
1,000
Land
39,000
39,000
Common Stock
Jan. 2
Bal.
65,000
65,000
Service Revenue
Jan. 4 5,500
11 4,100
29 2,600
Bal.
12,200
Advertising Expense
Jan. 17
600
Bal.
600
Chapter 2
Chapter 2
(continued) P 2-58A
Req. 3
Wortham Service, Inc.
Trial Balance
January 31, 20XX
ACCOUNT
DEBIT
Cash.............................................
$18,370
2,100
Supplies.......................................
1,000
Land.............................................
39,000
Equipment...................................
12,000
CREDIT
$ 1,000
Common stock............................
65,000
Dividends....................................
1,800
Service revenue..........................
12,200
Salary expense...........................
2,900
Advertising expense...................
600
430
Total.............................................
$78,200
$78,200
Req. 4
Total resources (assets) = $72,470 ($18,370 + $2,100 + $1,000 + $12,000
+ $39,000)
Chapter 2
Amount owed (total liabilities) = $1,000

Profit (net income) = $8,270 ($12,200 $2,900 $600 $430)
Chapter 2
(40-50 min.) P 2-59A
Reqs. 1 and 2
(a)
(b)
(f)
(j)
Bal.
Cash
50,000 (c)
60,000 (e)
3,790 (h)
1,600 (k)
60,390
(d)
Bal.
Supplies
450
450
(a)
Bal.
Building
107,000
107,000
47,000
6,100
100
1,800
Accounts Receivable
(g)
12,800 (j)
1,600
Bal.
11,200
(c)
Bal.
(h)
Music Equipment
47,000
47,000
Accounts Payable
100 (d)
450
(i)
700
Bal.
1,050
Note Payable
(b)
Bal.
60,000
60,000
Service Revenue
(f)
3,790
(g)
12,800
Bal.
16,590
(k)
Bal.
(i)
Rent Expense
1,400
1,400
Common Stock
(a)
157,000
Bal.
157,000
(e)
Bal.
Salary Expense
6,100
6,100
Advertising Expense
(k)
400
Bal.
400
Utilities Expense
700
Chapter 2
Bal.
700
Chapter 2
(continued) P 2-59A
Req. 3
Holt Music Services Corporation
Trial Balance
September 30, 2014
ACCOUNT
DEBIT
Cash............................................
$ 60,390
Accounts receivable..................
11,200
Supplies.....................................
450
Building......................................
107,000
Music equipment.......................
47,000
Accounts payable......................
CREDIT
1,050
Note payable...........................
60,000
Common stock..........................
157,000
Service revenue.........................
16,590
Salary expense..........................
6,100
Rent expense.........................
1,400
Advertising expense.................
400
Utilities expense........................
700
Total............................................
$234,640
Chapter 2
$234,640
(15-30 min.) P 2-60B
Dear Ramona,
This trial balance lists the accounts of the company, along with their
balances at December 31, 2014. The trial balance provides the data for
computing total assets, total liabilities, and net income or net loss.
Tampa Outdoor Design
a.
Total assets = $409,300 ($27,300 + $38,100 + $6,000 + $140,900

+ $197,000)
b.
c.
Net income = $48,800 ($164,700 $24,700 $10,000 $77,000

$4,200)
Student responses may vary.
Chapter 2
(45-60 min.) P 2-61B

Req. 1
= LIABILITIES
ASSETS
Accounts
Accounts
Cash + Receivable + Supplies + Equipment = Payable +
Bal.
2,050
a)
9,800
b)
5,800
c)
(4,900)
3,350
21,700
f)
13,600
h)
4,600
Issued stock
5,800
Service revenue
3,400
Service revenue
(600)
(1,500)
(2,000)
(2,000) Advertising expense
(2,400)
Bal.
Equity Transaction
700
3,400
g)
Retained
Earnings
(4,900)
700
600
Common
Stock +
STOCKHOLDERS EQUITY
9,800
d)
e)
8,900
7,450
___
6,150
700
(2,400) Dividends
21,700
4,700
23,400
Chapter 2
7,900
$36,000
$36,000
Chapter 2
(continued) P 2-61B
Req. 2
Computer Works, Inc.
Income Statement
Month Ended June 30, 2014
Revenues:
Service revenue ($5,800 + $3,400)............
$9,200
Expenses:
Advertising expense.........................
$2,000
Rent expense....................................
1,500
Total expenses..................................
3,500
Net income.................................................
$5,700
Req. 3
Statement of Retained Earnings
For the Month Ended June 30, 2014
Retained earnings, May 31, 2014..............................
$ 4,600
Add: Net income........................................................
5,700
Subtotal
10,300
Less: Dividends declared.........................................
(2,400)
Retained earnings, June 30, 2014............................
$ 7,900
Chapter 2
(continued) P 2-61B
Req. 4
Balance Sheet
June 30, 2014
ASSETS
LIABILITIES
Cash............................... $ 7,450 Accounts payable.................. $ 4,700

Accounts receivable.....
6,150
Supplies.........................
700
Equipment.....................
STOCKHOLDERS
EQUITY
21,700 Common stock.......................
23,400
Retained earnings..................
7,900
Total stockholders equity.....
31,300

Total assets................... $36,000
stockholders' equity..... $36,000
Chapter 2
(30-40 min.) P 2-62B

Req. 1
Journal
a.
DEBIT
Cash........................................................
Common Stock..............................
9,800
b.
Cash........................................................
Service Revenue...........................
5,800
c.
Accounts Payable .................................

Cash...............................................
4,900
d.
Supplies .................................................
Accounts Payable.........................
700
e.
Cash........................................................
Accounts Receivable................
600
f.
Accounts Receivable.............................
Service Revenue...........................
3,400
g.
Rent Expense.........................................
Advertising Expense..............................
Cash...............................................
1,500
2,000
Dividends................................................
Cash...............................................
2,400
h.
Chapter 2
CREDIT
9,800
5,800
4,900
700
600
3,400
3,500
2,400
(continued) P 2-62B
Reqs. 2 and 3
Cash
Accounts
Receivable
Supplies
Equipment
700
21,70
0
700
21,70
0
2,050
4,900
3,350
9,800
1,500
3,400
5,800
2,000
6,150
600
2,400
600
7,450
Accounts
Payable
4,900
Common Stock
8,900
13,600
700
9,800
4,700
23,400
Service
Revenue
5,800
Rent Expense
Retained
Earnings
Dividends
4,600
2,400
4,600
2,400
Advertising
Expense
1,500
2,000
1,500
2,000
3,400
9,200
2-74
The balances of all the accounts Cash through Common Stock agree
with the ending balances obtained in Problem 2-61B.
2-75
Chapter 2
(50-60 min.) P 2-63B

Req. 1
Journal
DATE
Apr.
2-76
ACCOUNT TITLES
DEBIT
2 Cash...........................................................
Common Stock.................................
70,000
3 Supplies....................................................
Equipment.................................................
Accounts Payable.............................
2,000
9,200
4 Cash...........................................................
Service Revenue...............................
1,400
7 Land...........................................................
Cash...................................................
42,500
11 Accounts Receivable...............................
Service Revenue...............................
2,800
16 Accounts Payable.....................................
Cash...................................................
9,200
17 Utilities Expense.......................................
Cash...................................................
150
18 Cash...........................................................
Accounts Receivable........................
300
22
170
Utilities Expense.......................................
Cash...................................................
CREDIT
70,000
11,200
1,400
42,500
2,800
9,200
150
300
170
29
Cash...........................................................
Service Revenue...............................
2,500
30
Salary Expense.........................................
Cash...................................................
4,900
Dividends..................................................
Cash...................................................
2,600
30
2-77
Chapter 2
2,500
4,900
2,600
(continued) P 2-63B
Req. 2
Cash
Apr.
70,000
4
18
29
1,400
300
2,500
Bal.
Accounts Receivable
Apr. 7 42,500
Apr. 11
2,800
2,500
16
17
22
30
9,200
150
170
4,900
Bal.
30
2,600
Apr. 3
Bal.
14,680
9,200
9,200
9,200
Apr. 7
Bal.
Apr. 3 11,200
Bal.
2,000
Apr. 2
Bal.
2,600
2,600
2-78
4,900
4,900
70,000
70,000
Service Revenue
Apr. 4
11
29
Bal.
Salary Expense
Apr. 30
Bal.
42,500
42,500
Common Stock
Dividends
Apr. 30
Bal.
2,000
2,000
Land
Accounts Payable
Apr. 16
300
Supplies
Equipment
Apr.
Bal.
Apr. 18
1,400
2,800
2,500
6,700
Utilities Expense
Apr. 17
22
150
170
Bal.
320
(continued) P 2-63B
Req. 3
Auguetta Brickworks, Inc.
Trial Balance
April 30, 20XX
ACCOUNT
DEBIT
Cash............................................
$14,680
Accounts receivable..................
2,500
Supplies.....................................
2,000
Land............................................
42,500
Equipment..................................
9,200
CREDIT
Accounts payable......................
$ 2,000
Common stock..........................
70,000
Dividends...................................
2,600
Service revenue.........................
6,700
Salary expense..........................
4,900
Utilities expense........................
320
Total............................................
$78,700
$78,700
Req. 4
Total resources (assets) = $70,880 ($14,680 + $2,500 + $2,000 + $9,200 +
$42,500)
Amount owed (total liabilities) = $2,000
2-79
Chapter 2
Profit (net income) = $1,480 ($6,700 $4,900 $320)
2-80
(40-50 min.) P 2-64B

Reqs. 1 and 2
Cash
Accounts Receivable
(a)
38,000 (c)
45,500
(g)
3,600 (j)
(b)
(f)
(j)
50,000 (e)
4,600 (h)
1,200 (k)
4,200
400
2,750
Bal.
2,400
Bal.
40,950
Music Equipment
(c)
45,500
Bal.
45,500
Supplies
(d)
1,900
Bal.
1,900
Building
Note Payable
(b)
50,000
Bal.
50,000
(a)
110,000
Bal.
110,000
Accounts Payable
(h)
400 (d)
(i)
Bal.
Common Stock
(a)
Bal.
148,000
148,000
Service Revenue
950
Bal.
950
Salary Expense
(f)
(g)
4,600
3,600
Bal.
8,200
Advertising Expense
(k)
1,200
2-81
(e)
Bal.
4,200
4,200
Rent Expense
(k)
1,800
Bal.
1,800
Utilities Expense
Chapter 2
1,900
900
2,400
(i)
Bal.
2-82
900
900
(continued) P 2-64B
Req. 3
Lone Star Entertainment Corporation
Trial Balance
March 31, 2014
ACCOUNT
DEBIT
CREDIT
Cash...............................................
$ 40,950
Accounts receivable.....................
2,400
Supplies.........................................
1,900
Building.........................................
110,000
Music equipment..........................
45,500
Accounts payable.........................
2,400
Note payable..................................
50,000
Common stock..............................
148,000
Service revenue............................
8,200
Salary expense..............................
4,200
Rent expense................................
1,800
Advertising expense.....................
950
Utilities expense...........................
900
Total...............................................
$208,600
$208,600
Challenge Exercises and Problem

(20-40 min.) E 2-65
a.
Total cash paid during December:
2-83
Chapter 2
Cash
Nov. 30 Bal.
10,000
Dec. receipts
96,000 Dec. payments
Dec. 31 Bal.
X = $101,000
5,000
$10,000 + $96,000 X = $ 5,000
X = $101,000
b.
Cash collections from customers during December:

Accounts Receivable
Nov 30 Bal.
27,000
Dec. sales
on account
Dec. 31 Bal.
47,000 Dec. collections

25,000
$27,000 + $47,000 X
c.
X = $49,000
= $25,000
X = $49,000
Cash paid on notes payable during December:

Notes Payable
Nov. 30 Bal.
X = 20,000 Dec. note payments
X Dec. new borrowing

Dec. 31 Bal.
11,000
28,000
19,000
$11,000 + $28,000 X = $19,000

X = $20,000
2-84
(20-30 min.) E 2-66

Req. 1
3 PT, Inc.
Trial Balance
October 31, 2014
Cash...
$ 3,900
Accounts receivable..
7,400
Land...
34,400
Accounts payable..
$ 6,000
Note payable
5,500
Common stock
20,100
Retained earnings..
7,500
Service revenue..
9,500
Salary expense
3,300
Advertising expense.
1,100
_______
Totals.
$50,100
$48,600
Out of balance by $1,500
The correct balance of Accounts Receivable is $5,900* ($7,400

$1,500). After this correction, total debits will be $48,600 ($50,100
$1,500), the same as total credits.
Req. 2
2-85
Chapter 2
a. Total assets
$44,200 ($3,900 + $5,900* + $34,400)
b. Total liabilities
$11,500 ($6,000 + $5,500)
c. Net income
$ 5,100 ($9,500 $3,300 $1,100)
(10-15 min.) E 2-67

Req 1
Burlington Co.:
Income statement
Employee medical exp...
Balance sheet
Cash................................
Accounts payable..........
Gardner Hospital:
Income statement
Service revenue..............
Balance sheet
Cash................................
Accounts receivable......
November
$44,000
Nov. 30
$53,000
44,000
November
$44,000
Nov. 30
$ -044,000
December
$ -0Dec. 31
$23,000*
14,000**
December
$ -0Dec. 31
$30,000
14,000**
Req 2
Explanation:
Burlingtons $44,000 expense is Gardners revenue.
Burlingtons $30,000 cash payment is Gardners cash receipt.
Burlingtons $14,000 account payable is Gardners account receivable.
2-86
__________
*$53,000 $30,000 = $23,000
**$44,000 $30,000 = $14,000
(20 min.) P 2-68

Req. 1
Effect
Date
May 1
2
on Cash
Effect on Total
Assets
Effect on
Net Income
Understated $300
Overstated $300
Overstated $300
Understated
Understated
Understated
$4,500
$4,500
$4,500
Correct
Understated
Understated
$1,000
$1,000
10
Correct
Correct
Correct
16
Correct
Correct
Overstated $2,000
25
Correct
Overstated $1,500
Correct
Req. 2
Correct cash balance, $10,300 ($5,500 + $300 + $4,500)
Req. 3
Correct total assets, $28,700 ($25,000 + $4,500 - $1,500 + $1,000 - $300)
Req. 4
2-87
Chapter 2
Correct net income, $13,200 ($10,000 - $300 +$1,000 - $2,000 + $4,500)
2-88
Decision Cases
(40-50 min.) Decision Case 1
Reqs. 1 and 2
Cash
Accounts Receivable
(a)
5,000 (c)
1,300
(g)
7,000 (i)
(b)
5,000 (d)
1,800
Bal.
5,800
(h)
2,500 (f)
2,000
(i)
1,200 (f)
1,200
(j)
1,000
Bal.
6,400
Supplies
(c)
Furniture
1,300
(e)
Accounts Payable
(j)
1,200
1,000 (e)
Bal.
4,400
Notes Payable
4,400
(b)
3,400
Common Stock
(a)
5,000
Service Revenue
Salary Expense
(g)
7,000
(h)
2,500
Bal.
9,500
2-89
(f)
2,000
Chapter 2
5,000
Advertising Expense
(d)
2-90
1,800
Rent Expense
(f)
1,200
(continued) Decision Case 1

Req. 3
Barlow Networks, Inc.
Trial Balance
Current Date
ACCOUNT
DEBIT
Cash..................................................
$ 6,400
Accounts receivable........................
5,800
Supplies............................................
1,300
Furniture...........................................
4,400
CREDIT
Accounts payable.............................
$ 3,400
Notes payable...................................
5,000
Common stock.................................
5,000
Service revenue................................
9,500
Salary expense.................................
2,000
Advertising expense........................
1,800
Rent expense....................................
1,200
Total...................................................
$22,900
$22,900
Req. 4 (net income or loss for first month of operations)

Revenues:
Service revenue......................
$9,500
Expenses:
Salary expense.......................
$2,000
Advertising expense..............
1,800
Rent expense..........................
1,200
Total expenses..................................
2-91
5,000
Chapter 2
Net income for month......................
$4,500
Recommendation: Barlow may want to review his criteria for keeping the
business open. His criteria for remaining in operation was net income of
$5,000. His actual result was close to his goal. Perhaps he was
unrealistic in his expectations. Most businesses, large and small, incur
losses in their first months of operation. Barlow Networks actually
earned a profit! The author suggests that Barlow stick it out for another
few months, at least.
2-92
(20-30 min.) Decision Case 2

Little Italy, Inc.
Income Statement
Month Ended December 31, 2014
Sales revenue........................................................
$42,000
Cost of goods sold (expense)..............................
22,000
Rent expense.........................................................
6,000
Advertising expense.............................................
5,000
Total expenses..................................................
33,000
Net income.............................................................
$ 9,000
Little Italy, Inc.

Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Cash............................... $ 12,000 Accounts payable.................

Food inventory..............
Furniture........................
5,000
$ 8,000
STOCKHOLDERS EQUITY
10,000 Common stock.....................

Retained earnings................
Total stockholders equity
10,000
9,000*
19,000
Total liabilities
Total assets................
$27,000
and stockholders equity.
_____
2-93
Chapter 2
$27,000
*Must solve for this amount. It is also the amount of net income, which is the only
change in retained earnings for the month.
Recommendation: Do not expand this month. The business falls short of the
goals for both net income and total assets. However, Little Italy, Inc. appears
to be profitable, and assets are building toward Sophias goals. Maybe next
month.
2-94
Ethical Issue 1
1. The ethical issue is whether these alternatives of financing the
business are proper from an economic, legal, and ethical standpoint.
2. The stakeholders are Scruffy Murphy, the bank, potential new
creditors,
and
the
friend
who
may
become
stockholder.
Consequences to the creditors are the inability of the company to pay

interest and the loan. Consequences to the investors are the inability
of the company to pay dividends and the possibility of loss of
investment if the company goes bankrupt.
3.
Option 1:
Cash..............................................
Common Stock.....................
100,000
Option 2:
Land..............................................
Common Stock.....................
100,000
Common Stock............................
Land......................................
100,000
100,000
100,000
100,000
Option 1 is economically sound, perfectly legal, and also ethical because the
sale of the stock is a valid transaction between the business and a
stockholder. The consequences of this decision are that Murphy obtains
additional financing at a cost (he now shares ownership of the business with
his friend). The friend gives up cash in exchange for an ownership interest
in the business. The bank and future creditors obtain complete and truthful
disclosure of the manner in which the business has been financed.
2-95
Chapter 2
Option 2 represents window dressing (making the company look like an

entity that it is not). Although it might be legal in the strictest sense of the
word (and it might not), this option does not faithfully represent economic
reality. Thus, it is not in accordance with GAAP, which is a substitute for the
legal criterion. This option is also unethical because the receipt of the land
by the business is not a real transaction. The transfer of the land back to
(continued) Ethical Issue 1
Murphy means that the business never actually has the land for its use. It
violates the rights of the bank and future creditors to give them information
that is inaccurate and that does not faithfully represent economic reality.
4.
2-96
The best option to take is definitely Option 1. The decision maker can walk
away from this transaction confident that he or she told the truth. Ethical
Issue 2
Part A.
1.
The ethical issue is whether you should question your grade, which is
higher than you expected. Your choices are (a) discuss the grade with the
professor; and (b) do not discuss the grade with the professor.
2, 3. Stakeholders are you, the professor, the other students in the class, and
the university. The possible consequences to you of discussing the grade
with the professor is that it may lead to the discovery that the professor
made a mistake in calculating the grade, which may lead to a downward
adjustment.
While
this
could
possibly
have
adverse
economic
consequences (i.e., perhaps loss of scholarship if the grade is substantially

lowered), it is unlikely that a letter-grade drop in one course would have such
an impact on grade point average as to cause loss of a scholarship. There is
no legal consequence to reporting a grade that is too high.
The ethical
consequence is generally positive on all concerned, as it leads to

clarification of the true grade.
4. Student opinions will vary on this part.
Part B.
2-97
Chapter 2
1. The ethical issue in this case is whether you should question your grade,
which is now lower than you expected. Your choices are (a) discuss the
grade with the professor; and (b) do not discuss the grade with the
professor.
2, 3. Like part a, the stakeholders are you, the professor, the other students
in the class, and the university.
The possible consequences to you of
discussing the grade with the professor is that it may lead to the discovery
that the professor made a mistake in calculating the grade, which may lead
2-98
(continued) Ethical Issue 2
to an upward adjustment. This could have positive economic consequences

(i.e., perhaps keeping a scholarship). Like part a, the ethical consequence of
this action is generally positive on all concerned, as it leads to clarification
of the true grade.
4. Most students would probably respond take it to the professor. But

shouldnt we be just as concerned about knowing the true grade either way?
The author recommends discussing the grade with the professor one way or
the other.
Part C.
Both course grades and financial statements report results that people use
in order to make decisions that can carry both positive and negative
consequences.
In both situations, it is important that the user receive
relevant information, and that the information faithfully represent facts as

they actually occurred.
Focus on Financials: Amazon.com, Inc.

(20-30 min.)
Reqs. 1 and 3
(All amounts in millions)
2-99
Chapter 2
Cash
b.
5,269
60,300
e.
f.
g.
h.
j.
44,837
14,446
132
428
2,934
Accounts Receivable, net and

other
2,571 b.
60,300
a.
61,093
3,364
Other Assets
2,792
1,388
Inventories
c.
4,992 d.
47,010
6,031
j.
45,971
Property and Equipment, net

j.
e.
44,837
c.
4,417
2,643
Net Sales
a.
Cost of Sales
45,971
Operating Expenses
14,446
14,446
132
132
Provision for Income Taxes

h.
61,093
61,093
Non-operating Income (expense),

net
Equity Method Investment

Activity, net of tax
i.
155
11,145
47,010
13,318
f.
2100
291
Accounts Payable
45,971
g.
155
1,524
7,060
d.
i.
428
428
155
(continued) Amazon.com, Inc.
Req. 2
(Millions)
61,093
61,093
a.
Accounts Receivable, net and other.................

Net Sales (Revenue)......................................
b.
Cash.....................................................................
Accounts Receivable, net and other............
60,300
c.
Inventories...........................................................
Accounts Payable.........................................
47,010
d.
Cost of Sales.......................................................
Inventories.....................................................
45,971
e.
Accounts Payable...............................................
Cash...............................................................
44,837
f.
Operating Expenses...........................................
Cash...............................................................
14,446
g.
Non-operating Expense, net..............................

Cash...............................................................
132
h.
Provision for Income Taxes...............................

Cash...............................................................
428
i.
Equity Method Investment Activity, net ...........

Other Assets..................................................
155
Property and Equipment, net.............................
2,643
j.
2-101
Chapter 2
60,300
47,010
45,971
44,837
14,446
132
428
155
Other Assets.......................................................
Cash...............................................................
291
2,934
(continued) Amazon.com, Inc.
Req. 4
All the selected account balances agree with Amazon.com, Inc.s actual
figures on the income statement or the balance sheet.
Req. 5
Revenue:
(Millions)
Net sales .........................................................
$61,093
Total revenue.......................................................
61,093
Expenses:
Cost of sales................................................... $45,971
Operating expenses.......................................
14,446
Non-operating expenses, net........................ 132

Equity method investment activity, net........
155
Provision for income taxes............................
428
Total expenses....................................................
Net loss............................................................
2102
61,132
$
(39)
Focus on Analysis: Yum! Brands, Inc.

(20-30 min.)
Req. 1
During fiscal 2012, Yum! Brands, Inc. had more sales than cash
collections. This is determined by analyzing net receivables, as follows:
Net receivables:
(Millions)
Balance at the end of fiscal 2011.......................................
+ Sales during fiscal 2012 (from consolidated
286
11,833
statements of income) .......................................................

Collections from customers during fiscal 2012 ..............
= Balance at the end of fiscal 2012.......................................
(X)
$
301
Solving for X, collections were $11,818 ($286 + $11,833 $301).

Another way to express this relationship is that when accounts
receivable increase during the year, sales must exceed cash
collections.
If accounts receivable decrease during the year, cash
collections must exceed sales.
(continued) Yum! Brands, Inc.

Req. 2
2-103
Chapter 2
Sales increased 8.63% in 2012, but increased more substantially

(11.35%) in 2011 perhaps due to a better economy.
Net income
increased more dramatically in 2012 (21.08%) than in 2011 (13.90%).

Net income grew faster than sales during the two year period due to
aggressive cost-cutting measures in 2012 and additional sources of
income. For example, food and paper increased only 6.6% in 2012 and
payroll and employee benefits increased 8.4% in 2012.
2012
2011
2010
$11,833
$10,893
$9,783
940
1,110
Percentage change
8.63%
11.35%
Net income (millions)
$1,597
$1,319
278
161
21.08%
13.90%
Sales (millions)
$ change
$ change
Percentage change
$1,158
Group Projects
Student responses will vary.
2104

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Full file at http://testbankcafe.

$19,400 ($15,000 + $4,400 + $7,500 $7,500)

(5-10 min.) S 2-3

Increased total assets:

Financial Accounting 10/e Solutions Manual

Copyright 2015 Pearson Education Inc.

Full file at http://testbankcafe.EU/ Solution-Manual-for-Financial-Accounting-10th-Edition-Harrison,-Horngren,Thomas

(5-10 min.) S 2-5

Purchase of asset on account

(Answers may vary.)

Copyright 2015 Pearson Education Inc.

Financial Accounting 10/e Solutions Manual

Copyright 2015 Pearson Education Inc.

Full file at http://testbankcafe.EU/ Solution-Manual-for-Financial-Accounting-10th-Edition-Harrison,-Horngren,Thomas

(10-15 min.) S 2-8

Copyright 2015 Pearson Education Inc.

(10 min.) S 2-9

First Mortgage Companys net income: $11 million ($38 $27)

(10 min.) S 2-10

= $88,500 ($5,400 + $18,300 + $2,500 +

Total liabilities = $48,900 ($26,000 + $22,900)

= $19,900 ($63,600 $33,000 $8,000 $2,700)

Financial Accounting 10/e Solutions Manual

Copyright 2015 Pearson Education Inc.

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Copyright 2015 Pearson Education Inc.

(10 min.) S 2-11

$ 95,660 ($132,200 + $4,060 $40,600)

$ 36,540 ($132,200 $95,660);

$36,540 / 9 = $4,060 (an integer), which suggests either a transposition

$127,700 ($132,200 + $13,800 $18,300)

$ 4,500 ($127,700 $132,200);

$4,500 / 9 = $500 (an integer), which suggests either a transposition or a

$113,900 ($132,200 $18,300)

$150,500 ($132,200 + $18,300)

$ 36,600 ($150,500 $113,900)

$36,600 / 2 = $18,300 (original amount of accounts receivable).

(10 min.) S 2-12

Financial Accounting 10/e Solutions Manual

Copyright 2015 Pearson Education Inc.

Full file at http://testbankcafe.EU/ Solution-Manual-for-Financial-Accounting-10th-Edition-Harrison,-Horngren,Thomas

Copyright 2015 Pearson Education Inc.

$256,000 ($200,000 + $56,000)

$256,000 ($200,000 + $56,000)

(10-15 min.) E 2-14A

Patti Brown, Store Manager

Financial Accounting 10/e Solutions Manual

Copyright 2015 Pearson Education Inc.

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San Antonio Store

Total liabilities and

*$75,000 + $204,000 = $279,000

Increased assets (cash)

No effect (a personal transaction)

No effect on total assets. Increase in cash offsets the decrease in

No effect on total assets. Increase in cash offsets the decrease in

Copyright 2015 Pearson Education Inc.

No effect on total assets. Increase in land offsets the decrease in

Increased assets (cash)

Decreased assets (cash)

Increased assets (equipment)

Increased assets (office supplies)

Decreased assets (cash)